Chinese Love for U.S. Is Smothering American Companies

by James Brumley | January 3, 2014 9:37 am

What do a Chinese recycling company and a globally-followed U.S. newspaper have in common? They’re both going to be owned by the same individual, if self-made multi-millionaire Chen Guangbiao has anything to say about … and if the U.S. Committee on Foreign Investment doesn’t mind.

[1]In an announcement quietly snuck in on the last day of 2013, China recycling mogul Chen Guangbiao said he was interested in acquiring The New York Times (NYT[2]). No, the iconic newspaper hasn’t put itself up for sale, and even if it was on the market, Guangbiao — worth an estimated $750 million — would have a tough time scooping up even a majority of the $2.4 billion newspaper. That doesn’t mean he’s not going to take some sort of shot at an American media entity, though — Guangbiao acknowledged he’d be willing to settle for the Wall Street Journal or CNN.

It’s an outrageous idea, of course. None of those companies are interested in being acquired, and even if they were, the regulations as well as the public outcry would be too great. It’s not quite as crazy as it seems, however, considering some of the other uproarious acquisitions of U.S. companies that Chinese suitors have attempted and made in recent history.

Chevron Swoops In At the 11th Hour

[3]Remember in 2005 when oil producer Unocal was acquired by Chevron (CVX[4])? What may have been forgotten is that only a few months before the Chevron/Unocal deal went through, Chinese oil company China National Offshore Oil Corporation (CEO[5]) was offering $18.5 billion to gain the foothold Unocal had in the United States oil market.

Between the public and political opposition, Congress managed to insert a clause into a new energy law that bought Chevron the time it needed to get its checkbook out and steal the deal from CNOOC. The biggest reason the bid from the Chinese company was dropped? Because Unocal wasn’t willing to reimburse CNOOC for the costs that would have been associated with killing the agreement with Chevron.

The maneuver wasn’t one without consequence. CNOOC also happened to be one of Chevron’s biggest Asian trading partners. In fact, the two companies had just entered into a long-term venture to sell liquefied natural in China. The relationship became instantaneously tense, and the echoes of the perceived-as-dirty deed are still ringing.

Tax-Funded Technology Given Away to Wanxiang?

[6]You don’t have to go back to 2005 to find Chinese buyouts of American companies that have ruffled feathers. One of the more recent eyebrow-raising deals was last year’s acquisition of lithium-ion battery maker A123 Systems by Chinese firm Wanxiang Group.

The beef wasn’t the nature of A123’s business; several companies make lithium-based batteries used to power electric vehicles. The concern was the fact that A123 Systems had received $250 million worth of grant money — American taxpayers’ money — from the U.S. government in 2009 to develop the very battery technology that Wanxiang was going to nab by picking up the pieces of bankrupted A123[7].

The solution ended up being an agreement to only acquire the A123 division that markets to commercial companies, and not to buy the piece of the company that provides batteries to the federal government. It’s tough to see how the underlying technology didn’t at least partially permeate from one part of the company to the other, however.

Don’t Even Think About It, Huawei

[8]Technically speaking, there was no political or public backlash prompted by the possibility of an acquisition, mostly because neither company ever even got a chance to float the idea. But, there’s little doubt that if smartphone makers ZTE or Huawei were mulling a partnership with — or the acquisition of — an American company, it was nipped in the bud before there was ever even a bud.

Along with a report published in October of last year[9], the House Intelligence Committee said it as plainly as could be: “China has the means, opportunity, and motive to use telecommunications companies for malicious purposes.” The panel went on to explain that U.S. regulators (referring to the The Committee on Foreign Investment in the United States ) should make a point of denying any mergers with U.S. companies, or acquisitions of U.S. companies, by Huawei Technologies or ZTE Corporation.

It doesn’t get much more straight-forward and paranoid than that.

Smithfield – Biggest Chinese Buyout Ever

[10]Chinese companies aren’t just interested in American media outlets or technology. China is just as interested in gaining some control in the food arena as well. In September of last year, Smithfield Foods (SFD[11]) shareholders agreed to the $4.7 billion acquisition offer from Shuanghui International. It was the biggest-ever acquisition of a publicly-traded U.S. company[12] by a Chinese buyer.

The worries that an overseas company from a now-somewhat-adversarial nation now controlled a great deal of the United States’ food supply were heard, but ultimately ignored.

More and More Chinese Interest in the U.S.

[13]While the high-profile purchases of American interests by Chinese companies may get the lion’s share of media attention, the dissenters may want to worry about the sheer number of smaller, less-publicized partial acquisitions that China’s been making in just the past couple of years.

Were you aware that China’s second-largest energy company, Sinopec (SHI[14]), spent $2.2 billion in the middle of last year to acquire one-third of a natural gas joint venture with Chesapeake Energy (CHK[15])? Sinopec is also a one-third owner of several projects that Devon Energy (DVN[16]) is developing. That’s an awful lot of Chinese involvement in domestic energy supplies[17].

Whether partial acquisitions or complete buyouts, one thing is clear — Chinese firms are quickly growing their interest in U.S. companies. In 2012, China submitted twenty-three notices of intent to buy American companies. That’s well up from 2011’s total notifications of ten. Last year’s tallies are still being taken, but there’s no disputing that China will be the prevailing suitor of American companies for the second year in a row when 2013’s final score is posted.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.